Profits jump

Fuelled by the recovery from the pandemic and a transformation plan, pre-tax profit and adjusting items came in at £269.4m over the 26 weeks to 2 October. That’s almost 53% up on that achieved over roughly the same period in the pre-pandemic 2019/20 financial year. It’s also above the £205m-£264m range predicted by analysts.

Although hard to ascertain whether growth was down to the company’s efforts to transform the business or the recovery in consumer spending following multiple lockdowns, food sales rose 10.4% over the period. Elsewhere, Marks’s long-derided Clothing and Home (C&H) division recorded a 17.3% rise in full-price sales and increased market share. No less than 34.4% of total sales from this part of Marks and Spencer now come from online.   

It gets better. Looking ahead, the retailer said that trading in the first four weeks of H2 had been “consistent with growth rates reported in Q2 and ahead of plan”. As a result, it expects recent demand “to be sustained in the near term” and is now targeting full-year pre-tax profit and adjusting items to be ahead of previous expectations at roughly £500m.

Contrarian pick

Today’s jump in the Marks and Spencer share price builds on the momentum seen over the last 12 months. In that time (and taking this morning’s move into account), the stock has climbed 87% in value. That’s an excellent result and provides evidence of how potentially lucrative contrarian investing can be.

Despite this recovery, MKS still traded on a valuation of 13 times earnings before traders sat down at their desks this morning. That looks fairly reasonable relative to industry peers. Next, for example, trades on 16 times forecast earnings and lacks Marks’s earnings diversification. It also looks reasonable considering the former’s plan to open 20 new stores and the progress made in reducing its debt pile. This now sits at £3.15bn, down from a little over £4bn in 2019/20.

Regardless of today’s move, the Marks and Spencer share price remains almost 30% below where it stood in 2016. To make matters worse, the company isn’t paying a dividend. Now, I’m more than willing to wait for a stock to recover. Even so, I would prefer to be receiving some form of compensation for my patience in the meantime. For me, this is easily one of the biggest issues with buying MKS stock now.

Unfortunately, the return of payouts looks some way off due to inflationary pressures. Throw in Covid-19-related obstacles, Brexit, supply chain concerns and old-fashioned competition and MKS is far from the home run today’s rise might suggest.

More upside ahead

Based on today’s report, however, it really does feel like this company is starting to get its mojo back. Assuming it has a positive festive period, I’m confident there’s more upside ahead for the Marks and Spencer share price.

Notwithstanding this, it’s clear that I shouldn’t get carried away given the multiple headwinds the company still faces. So, if I were to buy today, I’d definitely ensure that I was suitably diversified beforehand.

The post The Marks and Spencer (MKS) share price is flying! Here’s why appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Online sales rocket

Let’s start with the good stuff. Full-price sales were up 17% in the 13 weeks to 30 October, compared to the same period in 2019. This brings growth in the year-to-date to 11.2%, compared to the year that preceded the pandemic.

Personally, I find this comparison far more helpful in judging Next’s performance. With its multiple lockdowns and forced store closures, 2020 was just too much of an anomaly.

As you would expect, Next’s digital offer continues to see strong momentum relative to its retail stores. Total online sales in Q3 were up 40% versus 2019/20 while the latter fell by just over 6%.

This difference becomes even starker when sales figures for 2021-to-date are highlighted. With just three months to go before the end of Next’s financial year, online sales are already up 49.5% on 2019/20. By sharp contrast, retail sales have plummeted 28.8%.

If this doesn’t show just how popular shopping from the sofa has become (and how important it is for any retailer to get their digital offering right), I don’t know what will. 

So why is the Next share price falling?

It seems to be down to the company’s cautious outlook. Today, Next said that it wasn’t expecting recent trading momentum to continue into Q4, even though sales in the last five weeks of Q3 rose 14%. This was a far better result than the 10% growth management had previously forecast.

In line with keeping its feet on the ground, the FTSE 100 constituent elected to keep guidance on full-price sales unchanged at 10.2% for November to January. It also raised guidance on full-year sales only very slightly. Pre-tax profit of £800m over the 12 months is still expected. That would be a 6.9% improvement on 2019/20.

Rather helpfully, Next provided a host of reasons to back up its projections. These include the possibility that demand will reduce now that people have already satisfied their post-lockdown spending desires. The inflationary environment — and the need for consumers to prioritise essential goods over discretionary spending — won’t help matters either.

Like many other businesses, Next also mentioned that stock availability “remains challenging” due to supply chain issues and labour shortages. Further investment in digital marketing is on the cards too. 

This all looks very prudent to me. I’d far rather a company under-promise and over-deliver (which Next has a tendency of doing). As updates go then, I don’t think there’s anything new for holders to worry about. The question is, are the shares good value?

Good value

Up 40% over the last 12 months, Next stock now trades on 16 times earnings. That doesn’t feel excessive, in my opinion. Then again, I suspect the reasons cited in today’s statement make it more important than ever to ensure that I am properly diversified if I were to begin building a position today.

I’d also need to be confident that the company can hold its own in the run-up to the festive period if the share price isn’t to lose steam early in 2022.

Considering the headwinds it has faced lately, Next continues to impress. As retailers go, I suspect there are far worse options out there. It’s a cautious ‘buy’, in my book.

The post The Next share price falls despite strong sales. Should I buy now? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Drop in sales

Perhaps the most important figure was the slight drop in sales (0.2%) over the last 15 weeks. While disappointing, this is not unexpected given recent similar reports from other retailers. More positively, online sales were up by 7% over the last few months suggesting that the company, like its peers, has recognised the importance of offering a quality experience for shoppers who are unable to visit its stores.

Commenting on the update, outgoing Chief Executive, Michael Sharp, reflected that trading environment

“had been weaker since the new year, particularly in clothing, and our strategy to increase the mix of non-clothing sales has supported our performance against this background, with Health and Beauty sales in particular continuing to show good growth“.

Due to the volatile trading environment, the update goes on to mention that the board would be “keeping costs tight, managing margin and driving cash generation” but still expects this year’s profits to meet forecasts.

Overall, this was a mixed trading update from the company, albeit one that contained little in the way of surprises.

Fresh start?

Before today, the most significant news to come from Debenhams was last month’s appointment of ex-Amazon man Sergio Bucher. Given his previous role as vice-president of the online behemoth’s European fashion business, the decision to give him the job is perhaps understandable. Indeed, many of the company’s shareholders may have been heartened by the news following a series of profit warnings and poor results.

While it remains to be see whether this appointment was inspired, I’m more concerned by Chairman Sir Ian Cheshire’s comments that Bucher’s immediate priority is ascertaining the identity of their “core customer“. Given the challenges faced by all retailers at the current time, surely the company already has an idea of the sort of consumer they should be targeting?

Although Sir Ian went on to say that the average shopper at Debenhams would be “much younger than the M&S customer and much more fashion-interested“, this still feels unnervingly vague.  As an investor, I’d be worried.

Cheap for a reason?

A forecast price-to-earnings (P/E) ratio of just over 9 for next year and a well-covered yield of just under 5% makes Debenham’s shares look highly tempting at the current time. Nevertheless, I need to be convinced that this company can recover its earnings and offer a better retail experience compared to its high street and online competitors.

Next (LSE: NXT), for example, is trading on a P/E of 12 and yet has a far better track record of earnings growth, operating margins and return on capital employed. Dividends have also grown at a rapid rate over the past five years. 

Although its clothing range continues to be less than popular, even Marks & Spencer (LSE: MKS) appears to have better prospects despite the recent slump in its share price, especially given its highly-rated food offering. Its stock now has a P/E of 11 and yields over 6%.

And then there’s Asos (LSE: ASC). Can you imagine a fashion-conscious shopper deleting the online giant’s app and breaking a sweat to rush into one of Debenham’s stores? Neither can I.

If Debenhams has any hope of attracting younger customers, a complete overhaul of its image is required.

The post Is Debenhams plc doomed due to Asos plc, Marks & Spencer Group plc and Next plc? appeared first on The Twelfth Magpie.

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Results from boohoo should be with us on 26 April and should be good with analysts expecting a 46% rise in EPS. They have further gains above 20% per year pencilled-in for the next two years. But one thing that still leaves me wary is the volatility of the share price — since floatation in March 2014, the shares are actually down 39%. I’m also keenly aware of the ups and downs that ASOS shareholders have faced. Over five years those shares are up 62%, yet if you’d been unlucky enough to buy at their peak in February 2014, you’d be down 53%.

There’s a bit of a “dotcom bubble” feel about boohoo (and ASOS) to me, with boohoo shares on a forward P/E of 25 as far out as February 2018 (though it’s a lot lower than the multiple of 47 for ASOS based on August 2017 forecasts), and that puts me right off. But I’m an old bloke and I buy my shares the way I buy my clothes — conventional stuff that I intend to keep for years — so what do I know?

Shiny shiny

If you’d bought Randgold Resources (LSE: RRS) at their low point in September 2015, you’d be sitting on a nice gain of 81% right now as the shares have reached 6600p. That’s on the back of the rising price of gold, which has reached the $1,200 level per ounce from only a little over $1,000 in December.

Buying mining shares is a good way of gearing up the profits you can make over buying the metal itself — every percentage rise in the price of gold represents a bigger percentage rise in a miner’s profits once it has cleared the cost of production. Of course, the same works in reverse and a gold price fall is geared up to a bigger percentage fall in miners’ profits.

What I don’t like about Randgold shares is their high forward P/E of 37, dropping only as far as 31 on 2017 forecasts, because that suggests there’s a fair bit more gold price growth built into the share price. I reckon trying to guess where something as fundamentally useless as gold is going is a waste of time.

Health profits

NMC Health (LSE: NMC) has been a growth star, with a 69% rise since last April’s peak to 1120p, and a 390% gain over five years. And for once, I’m seeing a growth share that I actually like the look of. NMC operates a healthcare chain in the United Arab Emirates, where oil wealth has produced plenty of customers who want top medical treatment — as shown in several years of accelerating earnings growth.

What’s more, we have an EPS rise of 58% forecast this year, followed by 23% next, and that would drop the P/E to just 16. We’re also looking at PEG ratios (which compare the P/E with the growth rate, the lower the better) of 0.3 this year and 0.7 next — and that’s firmly in the territory that would have excited the growth investor in a younger me.

The post Can Boohoo.Com PLC (+73%), Randgold Resources Limited (+81%) And NMC Health PLC (+69%) Keep On Soaring? appeared first on The Twelfth Magpie.

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In fact, I added Vodafone to the Fool’s Beginners Portfolio back in 2012, as it looked good value, but after the Verizon disposal and rumours of a takeover bid by AT&T, the shares have been trading at what I see as takeover levels — which is too high for current fundamentals, in my view. I dumped Vodafone in December 2013, and I still think that was the right decision.

With the shares at 219p, we’re still looking at a P/E of over 45 based on expectations for the year to March 2016, and that would only drop to 28.5 by 2018 after two years of forecast earnings growth — still around twice the FTSE average. Predicted dividends of more than 5% wouldn’t be anywhere near covered by earnings even then. I still think Vodafone will return to winning ways, but right now I see the shares as too expensive and I don’t want any.

High street champion

Next (LSE: NXT), on the other hand, has been a favourite of mine for some time, and it remains so despite the company’s warning that “2016 will be a challenging year with much uncertainty in the global economy“. That came with full-year results this morning, and helped send the share price down 14% to 5,725p at the time of writing.

But Next is still raking in the cash in by the bucket load, and in the year to January 2016 the firm returned £568m to shareholders through dividends (ordinary plus special) and £151m through share buybacks. The 388p in dividends per share paid for the year (158p ordinary, 230p special) represents a total yield of 6.8%.

I’m normally very wary of fashion retailers, but Next has such a strong reputation for its buying expertise, and it sells decent clothing at decent prices, rather than riskier top-label clobber to the fickle end of the market. That, coupled with a likely P/E of around the FTSE average even if 2016 is a bit tough, and those better-than-6% dividends, makes Next a ‘buy’ for me.

Fill up with oil

And BP (LSE: BP), well, I don’t see how it can possibly not be a strong ‘buy’ today, with the shares down 32% from their June 2014 peak to 350p. The fall is entirely due to the slump in oil prices, but the timescale of it has not taken BP by surprise — chief executive Bob Dudley reckoned some time ago that we could be in a cheap oil spell for two or three years or more, but was happy that BP could ride it out just fine.

The price of a barrel has been hovering around $40 for a couple of weeks now, up from $30 levels in February, and if that trend continues then BP shares could be heading upwards sooner then expected. But even if it still takes a while longer, BP shares are still on a modest P/E of under 13 based on 2017 forecasts.

On top of that, there are dividend yields of 7.7% forecast for this year and next — and BP reiterated its “commitment to sustaining our dividend and then growing free cash flow and shareholder distributions over the long term” at full-year results time earlier this month. I don’t see why you wouldn’t want some of that.

The post Here’s Why I’d Sell Vodafone Group plc And Buy NEXT plc And BP plc appeared first on The Twelfth Magpie.

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Full-year results released on 26 February didn’t help, with the shares losing 7% on the day, after the bank announced a £2bn loss — although it did shoulder restructuring costs of nearly £3bn during the year. But RBS’s recovery should start gathering strength in 2017 with a 19% rise in earnings per share on the cards, and restructuring costs should start to drop off that year after another £1bn charge expected in 2016.

There will be a 2016 stress test to get through, but the bank reckons it should be back to distributing capital to shareholders “later than Q1 2017“. I see RBS as on the mend and with a good long-term future, but right now I think the shares a still a little overvalued compared to Lloyds on a P/E of nine and with 6% dividend yields on the cards.

Oil strengthening?

Shares in Tullow Oil (LSE: TLW) are down 85% over five years, to 224p, but since a low on 20 January this year they’ve managed an 83% recovery. That’s closely related to the recovering price of oil, which is up to $42 per barrel from a low of below $30 in mid-January, and any further rise in Tullow Oil shares will surely be dependent on a further strengthening of the black stuff.

But the company did get an extra boost on 16 March, when an update on its Cheptuket-1 well in Kenya reported strong oil flows over an interval or more than 700 metres, with exploration director Angus McCoss calling it “the most significant well result to date in Kenya outside the South Lokichar basin“.

Production from other African assets should ramp up this year too, and while an investment in Tullow would still be risky now, I’m cautiously optimistic.

Bad publicity

Sports Direct International (LSE: SPD) boss Mike Ashley has been in the news for the wrong reasons recently, having been summoned to appear in front of a committee of MPs regarding allegations surrounding the company’s employment practices.

That comes on top of January’s Christmas trading update that reported poor trading — which the company blamed on the unseasonal weather. It led the firm to say it was “no longer confident of meeting our adjusted underlying EBITDA target […] of £420m for the full year“. On the day, the shares lost 15%, and they’ve since fallen to 437p for a 45% drop since the beginning of December.

The company has dropped out of the FTSE 100 now, but I can’t help thinking its fundamentals are starting to look attractive again. After years of double-digit gains, EPS is expected to fall slightly this year. But two subsequent years of modest recovery would drop the P/E to only 9.4 by April 2018, and that just seems too low to me.

Index trackers selling off the shares will have contributed to the fall, but with the price up 9% so far today they might have given us a nice buying opportunity.

The post Are Royal Bank of Scotland Group plc, Tullow Oil plc And Sports Direct International Plc Poised For Comebacks? appeared first on The Twelfth Magpie.

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Look at JD Sports Fashion (LSE: JD), whose shares have fallen back a little from their recent 12-month high due to the latest FTSE 100 panic. They’re still up 107% over the period, mind, as the company looks set to bounce back to strength after a tough 2014/15. For the year just ended January 2016 the City’s analysts are expecting a 28% EPS rise — and those results should be with us on 14 April.

That would put JD Sport on a P/E of 21, however, dropping only to around 19.5 if the following year’s 8% EPS rise comes off. A strong Christmas trading period, with a 10.6% rise in like-for-like sales, did improve sentiment towards the company considerably, and I can easily see a couple of years of impressive trading coming up, as the economy continues to improve and consumer spending remains reasonably robust.

But right now, especially with recovering dividends still yielding less than 1%, I see JD shares are too expensive — especially when there are so many better bargains out there.

Risky fad?

Online fashion retail is a risky business, but that didn’t stop Boohoo.com (LSE: BOO) hitting a 52-week high of 44.75p on 5 February. In the past few days the price has dropped back to 40.8p, but that has still given shareholders a 71% rise in 12 months.

And there could be more to come, after a January trading update told us the firm expects the full year to beat previous expectations. The year ends in February 2016, and the pundits have a 43% rise in EPS penciled in, with a further 27% for the following year. But we’re looking at high P/E ratios of 37, dropping only as far as 29 based on 2017 forecasts.

An early growth start can command such high valuations successfully, and an investment in Boohoo right now might do well. But I’m minded of ASOS (LSE: ASC) and the spectacular roller-coaster of boom and bust that its shares have been riding for some years. I’m keeping away.

Cheap homes?

I’ve kept my best for last, and it’s housebuilder Bellway (LSE: BWY), which has just released a first-half trading update ahead of interim results due on 22 March. The firm reported an 11.6% rise in housing completions, with a 17% boost to its average selling price to £257,000. The company’s forward order book looks strong and it’s buying up plenty of land at favourable prices.

It’s no surprise, then, that the share price has been hovering around a 52-week high in 2016, although it’s dipped along with the rest of the market in the February sell-off. Still, the update gave the price a 3.5% boost to 2,570p on the day, and that brings in a 33% gain in 12 months.

With a forward P/E for the full year of only 9.4 and a 3.4% dividend yield on the cards, Bellway is looking cheap to me.

The post Are JD Sports Fashion PLC (+107%), Boohoo.Com PLC (+71%) And Bellway plc (+33%) Too Good To Miss? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.